Dec 1/09 | As Expected, The Revolution Eats Those Who Fed It

PMBComment XXI Century Socialism turned out to be - as long predicted - nothing more than a tropical, i.e. half baked, version of the early 20th Century US Robber Barons. The key difference is that the US version of unrestrained capitalism was the quasi monopolistic exploitation of unregulated sectors by brilliant entrepreneurs; while in Venezuela, we have the blatant looting of the State by individuals fronting for, or acting in cahoots with, the principle figures in the Bolivarian Revolution. Under the Chávez family, impunity replaced ingenuity, and gluttonous consumption passed as farsighted investment.

I have always mocked the gap between the anti-capitalist bla-bla of Mr. Chávez and the rapacious capitalism of his family members and assorted cronies - now, the resulting abyss, full of red ink, is there for all to see. The sudden fall from grace of Mr. Fernandez Barrueco, and his cohorts, described succinctly in the note below, is probably the beginning of the last chapter of a corrupt and incompetent government that magnified the ills of the past while it dynamited all that actually functioned in the country. Socialismo, Patria y sobre todo, muerte y destrucción! PMB

WSJ DECEMBER 1, 2009

Caracas Shuts Banks, Sealing Insider's Fall Closure of Four Institutions, Owned by Venezuelan Billionaire With Ties to President, Suggests Showdown in Chávez's Circle

By JOSé DE CóRDOBA, DARCY CROWE and JOEL MILLMAN

CARACAS -- Venezuela said Monday it will liquidate two banks owned by businessman Ricardo Fernandez and temporarily shut two others, intensifying a showdown between President Hugo Chávez and a billionaire long considered a close ally.

Mr. Fernandez, who made an estimated $1.6 billion largely through government contracts, was seen by many Venezuelans as the epitome of the crony capitalism they say has flourished under Mr. Chávez.

It is unclear why the government moved against him. Some analysts here believe Mr. Chávez wants to be seen as tough on corruption amid an economic downturn. Others suggest the arrest and bank closures represent a behind-the-scenes battle over this oil-rich state's lucrative spoils.
On Sunday, Mr. Chávez suggested it was the former, taking to the airwaves to attack Mr. Fernandez and others who have profited from government connections. "There are people out there that say that they are revolutionary and are doing business. A true revolutionary is not going around doing business for profit," he said on his weekly television show.

Bank employees and customers outside a branch of Ricardo Fernandez's Banco Canarias, which Venezuela announced Monday it will liquidate.

Mr. Fernandez, 44, turned himself in to Venezuela's secret police on Nov. 20, hours after the government took over the management of four failing banks that he and a group of investors had bought over the course of the past year. He faces up to 10 years in prison on charges of illegally using depositors' money, self lending and criminal association.

The government says Mr. Fernandez's banks made illegal loans for as much as $846 million. The alleged violations were on record for months before the government's financial watchdog moved on them.

Antonio Guerrero, Mr. Fernandez's lawyer, says his client's legal problems are the result of an inaccurate audit of the banks books. "The charges are totally false and without foundation," he says.

In Caracas, depositors lined up outside the four banks, which were acquired by Mr. Fernandez and partners over the past year and account for about 6% of deposits in the country's banking system. About 750,000 people are affected by the announced liquidation of Banco Canarias de Venezuela CA and Banco Provivienda CA. The government says it wants to rehabilitate the other two, Bolivar Banco CA and Banco Confederado SA.

Many analysts and bankers in Caracas believe Mr. Fernandez's troubles signal a struggle between powerful factions in the Chávez government. "Something changed in his relationship with the Chávez power structure," said José Guerra, a former Venezuelan central bank director.
Mr. Chávez, who has been in power for more than a decade, has expanded the state role in the economy at the expense of the country's traditional business class. But his rule has created a class of connected businessmen who have won big government contracts -- derisively called the "Boliburgueses," or Bolivarian Bourgeois, a play on Mr. Chávez's self-styled Bolivarian revolution.

Mr. Fernandez was the most powerful of these, analysts say, and Mr. Chávez's favorite banker. State institutions account for more than 42% of Banco Canarias's deposits, or $2.13 billion.
These people also say Mr. Fernandez was close to power brokers including Diosdado Cabello, the public-works minister, and Mr. Chávez's older brother and mentor Adan, currently the governor of Barinas state. Spokesmen for Mr. Cabello and Adan Chávez declined to comment.

Mr. Fernandez, the son of a Spanish immigrant who owned parking lots in Caracas, became the prime provider of food products to Mercal, a government-run store chain that sells subsidized foods to poor Venezuelans. Now known as the "King of Mercal," he employs some 18,000 people.
He broke into the inner circles of Mr. Chávez's government in 2002 after Venezuelan business leaders backed an ill-fated general strike in a bid to topple Mr. Chávez. Mr. Fernandez offered his trucks to the government to help distribute foodstuffs.

He expanded his investments in food producers to meet government contracts. The government backed his group, which was a rival to Venezuela's largest private company, food producer Empresas Polar SA, which Mr. Chávez has threatened to nationalize.

By 2005, his net worth was $1.6 billion, according to a "statement of financial condition" drawn up by Caracas accounting firm Alcaraz Cabrera Vasquez, KPMG's Venezuela affiliate. The firm declined to comment, citing client confidentiality.

Orlando Ochoa, an economist critical of Mr. Chávez's economic policies, says Mr. Fernandez's arrest could suggest rising influence of Socialist ideologues within the government who disdain the Boliburgueses. The nod for intervention in Mr. Fernandez's banks came from Finance Minister Ali Rodriguez, a former leftist guerrilla and self-described Marxist.

Others in Caracas believe Mr. Fernandez's arrest is a pre-emptive strike by Mr. Chávez against legal moves by U.S. authorities against the businessman.

In 2007, the U.S. Drug Enforcement Administration confiscated a private plane belonging to one of Mr. Fernandez's businesses because it was incorrectly registered in the U.S. In an affadavit, the DEA said such registrations were typical of people involved in illegal activities who sought to minimize searches, letting foreign owners "use the airplane to traffic drugs, arms, or cash."

In 2008, Miami prosecutors fined Mr. Fernandez's U.S. company $1.1 million, saying the confiscation had been solely due to the faulty registration, and not because the aircraft was involved in illicit activities. Mr. Fernandez has also had his U.S. visa revoked, says Mr. Guerrero, his lawyer.

"Mr. Fernandez has been subject to sanctions because he is identified with President Chávez," said Mr. Guerrero.

Write to Darcy Crowe at darcy.crowe@dowjones.com and Joel Millman at joel.millman@wsj.com
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